Processing a security deposit in the wrong way can ruin the situation for the landlord. If a tenant is clearly responsible for damaging the home, but you handle the deposit incorrectly, you'll have to refund their money. A technicality or bad paperwork often means the difference in who pays for those damages.

Why? The courts look at security deposits as a process. If the situation goes to trial, the judge will likely ask, “Did you send the deposit according to these guidelines?” If you say, “Yes,” they’ll ask to see the documentation. If you can’t provide it, you lose by default.

Rather than resigning yourself to falling into the trap of mishandling a security deposit, follow these five tips to get it right.

1. Be Fair

Think realistically about what’s fair to the tenant. Don’t overcharge tenants for minor damage like a small stain on the carpet or a scratch on a countertop.

That happened to me years ago when I rented a house in Denton — I was charged to replace all the countertops in the kitchen with granite because of a scratch in the Formica. After I moved out, I didn’t receive my deposit or any explanation of the funds. According to Texas law, landlords have to send a certified letter to tenants within 30 days of the end of the lease. So I waited 32 days to make sure I was outside the window before calling my landlord to say, “Hey! I haven’t received my deposit.” They sent me an itemization showing they had charged me for brand new granite countertops. But because they were late, I got all my money back. I sent a demand letter, and they sent me a full refund within 24 hours.

Even if they’d sent the itemization on time, the landlord still would've lost in court. I, the tenant, would've told the judge, “Here are the pictures before I moved in. We want to see proof of the after-move-out condition that warranted the need to replace the countertops.” And even if they had the proof, they could have only charged me to replace it with a comparable product.

Key Takeaway:

Be fair. Don’t overcharge tenants for minor damage like a small stain on the carpet or a scratch on a countertop.

2. Send Within the Time Frame

This also proves the importance of returning the deposit or sending the itemization on time. In my situation as the tenant, a late notification was all I needed to get my full deposit returned.

3. Send By Certified Mail

If you don’t send the itemization and remaining deposit by certified mail, you didn’t send it. So make sure to send it the right way.

4. Don’t Charge Without Before/After Photographs

Do not charge tenants for anything you don’t have the pictures to prove. If you go to court, you will have to prove the before and after condition of damages with time-stamped photos. If you can’t pull up a few pictures to say, “Here’s what it looked like before you moved it and here’s what it looks like now,” don’t charge for it.

Key Takeaway:

You must be able to prove the before and after condition of damages with time-stamped photos.

5. Remember How the Judge Sees It

Once you get past the clear-cut deadlines and correct way to send the documentation, the decision is up to the discretion of the judge. Think about how the situation looks. They’re no stranger to the circumstance; if it looks like you’re trying to rip off the “little guy” and blatantly get away with it, who do you think they’ll favor?

Also, remember to keep invoices. If you send a security deposit itemization saying you spent $2,000, you need to keep invoices for the expenses. You can do the work yourself as long as you keep receipts for your materials and estimate your labor costs. But you have to be able to prove the work was completed for the amount you charged. You can’t just say, “The tenant ruined my carpet! I’m keeping the deposit!” and clean the carpet yourself for a fraction of the cost.

Here’s the bottom line when you’re dealing with security deposits — only spend the money on what you’re supposed to spend it on. Deposits are for damages caused by the tenant due to their negligence, not just normal wear and tear.